Long 1 lot Syarikat XYZ stock @ RM 15Long 1, 3-month Syarikat XYZ put @ RM 0.15 B C D E Stock Price of maturity Value of long stock position Profit/loss to Long Put position @ 0.15 Value of combined position at maturity 4 10 -5000 4850 -150 5 11 -4000 3850 -150 6 12 -3000 2850 -150 7 13 -2000 1850 -150 8 14 -1000 850 -150 9 15 0 -150 -150 10 16 1000 -150 850 11 17 2000 -150 1850 12 18 3000 -150 2850 13 19 4000 -150 3850 14 20 5000 -150 4850 1. Based on table above Draw the payoff profile of combined positions and calculate: -Max Profit -Max Loss -Breakeven point
Cost of Capital
Shareholders and investors who invest into the capital of the firm desire to have a suitable return on their investment funding. The cost of capital reflects what shareholders expect. It is a discount rate for converting expected cash flow into present cash flow.
Capital Structure
Capital structure is the combination of debt and equity employed by an organization in order to take care of its operations. It is an important concept in corporate finance and is expressed in the form of a debt-equity ratio.
Weighted Average Cost of Capital
The Weighted Average Cost of Capital is a tool used for calculating the cost of capital for a firm wherein proportional weightage is assigned to each category of capital. It can also be defined as the average amount that a firm needs to pay its stakeholders and for its security to finance the assets. The most commonly used sources of capital include common stocks, bonds, long-term debts, etc. The increase in weighted average cost of capital is an indicator of a decrease in the valuation of a firm and an increase in its risk.
Long 1 lot Syarikat XYZ stock @ RM 15Long 1, 3-month Syarikat XYZ put @ RM 0.15
|
B |
C |
D |
E |
|
|
|
Stock Price of maturity |
Value of long stock position |
Profit/loss to Long Put position @ 0.15 |
Value of combined position at maturity |
|
4 |
10 |
-5000 |
4850 |
-150 |
|
5 |
11 |
-4000 |
3850 |
-150 |
|
6 |
12 |
-3000 |
2850 |
-150 |
|
7 |
13 |
-2000 |
1850 |
-150 |
|
8 |
14 |
-1000 |
850 |
-150 |
|
9 |
15 |
0 |
-150 |
-150 |
|
10 |
16 |
1000 |
-150 |
850 |
|
11 |
17 |
2000 |
-150 |
1850 |
|
12 |
18 |
3000 |
-150 |
2850 |
|
13 |
19 |
4000 |
-150 |
3850 |
|
14 |
20 |
5000 |
-150 |
4850 |
1. Based on table above Draw the payoff profile of combined positions and calculate:
-Max Profit
-Max Loss
-Breakeven point
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